Her CEO Journey™: The Business Finance Podcast for Mission-Driven Women Entrepreneurs

Weekly show where my featured guests and I explore the financial and business challenges women face on the entrepreneurial journey to success. You'll hear them talk about the money side of their businesses in ways you've always wanted to know about, but wouldn't dare ask. They openly share their disappointments, failures, successes, and everything in-between as they grew sales ranging from 6 to 9 figures. Knowing where your business stands financially helps you make critical decisions with confidence. It's simply the best way to be sure you grow a business that fuels the life you want to live.

https://www.christinasjahli.com/

subscribe
share





episode 121: Funding Your Business: When Should You Bootstrap or Raise Capital Externally? - The Journey of Michelle Eichner [transcript]


As a startup company, you may choose to bootstrap your funding. In fact, some business owners find it more comfortable to do so, as was the case for Michelle Eichner and her first company. From bootstrapping her company to success, she talks about her journey to creating a financial model that works. According to Michelle, it is important to make well-researched assumptions and reasonable predictions for business growth, such as when and where to increase or reduce your financial resources. 

Michelle also talks about why she eventually chose to raise capital externally for her second company. Building her digital product was a more competitive venture than her previous emailing platform. She explains why bootstrapping was no longer an option in this case. Furthermore, Michelle tackles the benefits of attracting investors and using special purpose vehicles.

Do you want to know which type of funding is the best fit for your business? Listen to this episode to know more! 

3 reasons why you should listen to the full episode: 

  1. Learn how Michelle transitioned from bootstrapping her business to raising capital and seeking investors.
  2. Explore how using special purpose vehicles can help you raise capital.
  3.  well-researched business projections are crucial for your financial model.

Episode Highlights

  • [04:53] Starting as an Entrepreneur
  • [06:44] Michelle’s Second Company
  • [12:14] Bootstrapping for Pivotal Veracity vs Raising Capital for Digitile 
  • [15:24] What If Digitile Was Founded in the 2000s?
  • [18:46] Choosing to Raise Capital for Digitile
  • [20:32] Digitile’s Financial Model
  • [23:09] The Changing Model of Digitile
  • [27:39] The Benefits of SPVs
  • [33:01] Determining the Amount of Investment
  • [34:51] A Checklist for Capital Raising
  • [37:02] Understanding Your Financial Numbers for a Well-Thought Pitch Deck
  • [42:52] What Michelle Would Do Differently
  • [48:02] Hiring a CFO

Enjoyed This Podcast?

Write a review and share this with your friends.

Connect With Me

Ready to transform your purpose into an impactful business financial story, profit, and joy? Schedule a chat with me at any time.

Resources

  • Are you getting ready to raise capital? Identify the financial gaps that can stop you from building a profitable and sustainable business first. Download this quiz!
  • Download this Action Guide to help you determine the best type of funding for your business.




share







 2021-06-24  52m
 
 
00:03  Christina Sjahli
If you can
00:03
share why you choose to raise
00:06
capital with Digitile, but not
00:06
with Pivotal, your first
00:11
venture.
00:12  Michelle Eichner
This is where
00:12
the business model, the price
00:15
points, and I'll say the go to
00:15
market strategy, differ.
00:21  Christina Sjahli
When is it
00:21
appropriate to bootstrap your
00:23
business all the way, without
00:23
raising any external capital,
00:28
versus when to bootstrap
00:28
partially, and maybe later raise
00:32
capital? Well, the answer to
00:32
this question, it depends, and
00:37
it depends on so many factors.
00:37
Over the last few weeks, you
00:43
have listened to the capital
00:43
raising special purpose vehicle
00:46
podcast series. This is a four
00:46
part series where we dive into
00:50
details of the differences
00:50
between venture capital and
00:54
special purpose vehicle or SPV.
00:57
What's the benefit of raising
00:57
capital using an SPV? What
01:01
founders need to know if they
01:01
want to use SPV to raise capital
01:05
and the legal side of forming
01:05
and dissolving an SPV. If you
01:10
missed the last three episodes
01:10
of the series, I invite you to
01:14
check them inside
01:14
https://www.christinasjahli.com/herceojourneypodcast
01:19
and start with Episode 118,
01:19
using a special purpose vehicle
01:25
as an option for capital
01:25
raising.
01:27
Today's episode is part four of
01:27
four so it is the last episode
01:32
in this podcast series. We are
01:32
joined by a serial entrepreneur,
01:36
Michelle Eichner, who
01:36
bootstrapped all the way and
01:40
exited her first startup and
01:40
then now on her second startup
01:44
digital, she chose to bootstrap
01:44
and then raise capital using
01:49
special purpose vehicle.
01:51
You're listening to Her CEO
01:51
Journey, the business finance
01:54
podcast for mission-driven women
01:54
entrepreneurs. I'm your host,
01:58
Christina Sjalhi. If you are new
01:58
here, a big warm welcome. If we
02:03
are not connected on LinkedIn,
02:03
please reach out and say hi,
02:07
because that's where I hang out
02:07
and share my business finance
02:11
tips. If you have been listening
02:11
to this podcast for a while, and
02:15
you are a regular listener, I
02:15
want you to know I appreciate
02:19
you, my podcast won't be around
02:19
without your support.
02:23
This is a free weekly show where
02:23
my guests and I want to inspire
02:27
you to balance between mission
02:27
and profit, to create an impact
02:31
in this world, and to achieve
02:31
financial equality through your
02:36
business for good. As a founder
02:36
it can pay off to assess the
02:40
possibilities for capital
02:40
raising that can help you to get
02:44
to your desired level of growth.
02:44
But it doesn't mean capital
02:48
raising is the only way to grow.
02:48
You have other options.
02:53
Maybe you choose to bootstrap at
02:53
the beginning and later realize
02:56
it's time to raise capital.
02:56
There are no right or wrong
03:00
answer in terms of choices
03:00
between when to bootstrap and
03:04
when to raise capital. Or if you
03:04
want to bootstrap all the way or
03:09
raise capital from the
03:09
beginning. Whatever choices you
03:13
make, there is one common step
03:13
you cannot leave behind, and
03:17
that step is about understanding
03:17
what your financial gaps are.
03:23
Yes, sometimes it can be hard to
03:23
know where to find those gaps.
03:27
So I have created a quiz to
03:27
identify any financial gaps you
03:31
may have, and stop you from
03:31
building a sustainable and
03:34
profitable purpose-driven
03:34
business. You can find a link to
03:38
the quiz in the show notes. I
03:38
encourage you to take this quiz,
03:43
then take action to fill in the
03:43
financial gaps.
03:46
And we are here to partner with
03:46
you. We understand business
03:50
finance can be confusing, but it
03:50
doesn't have to be complicated.
03:54
You want someone who is as
03:54
passionate as you are and takes
03:58
your business to the next level.
03:58
Once we show it to you, you will
04:02
understand and trust your
04:02
financial numbers and we make
04:06
sure you are making business
04:06
decisions with your purpose
04:10
front and center. Connect with
04:10
us at
04:12  https
//www.christinasjahli.com/let-s-chat.
04:16
Now let's find out Michelle's
04:16
CEO journey. Michelle Eichner,
04:22
welcome to Her CEO Journey. It
04:22
is a pleasure to have you here
04:26
today.
04:27  Michelle Eichner
Thank you for
04:27
having me. I'm looking forward
04:29
to this conversation.
04:30  Christina Sjahli
Me too. Before
04:30
we get started talking about
04:33
capital raising special purpose
04:33
vehicles. Let's start with your
04:37
journey first. You have been, I
04:37
call it serial entrepreneur, you
04:42
exit a business and then
04:42
currently you are building your
04:45
second business. So let's start.
04:45
What made you decide to become
04:50
an entrepreneur in the first
04:50
place?
04:52  Michelle Eichner
I've always
04:52
been really business-minded and
04:54
entrepreneurial, I knew I wanted
04:54
to go into business. I guess as
04:58
a young child, I did odd jobs,
04:58
flip burgers, I grew up in
05:02
Chicago, snow-blowed drive ways
05:02
to make money for a living. I
05:07
was always kind of on the track
05:07
of trying to find ways to
05:11
essentially make money in order
05:11
to buy things I wanted to buy. I
05:14
didn't set out to initially be
05:14
an entrepreneur, I went to grad
05:18
school at Northwestern and got a
05:18
master's in direct marketing.
05:21
Many years later, a classmate of
05:21
mine approached me this is in
05:26
the early 2000s, n the .com,
05:26
I'll say boom and bust era, of
05:31
which she asked me if I'd be
05:31
interested in starting a
05:34
business in the B2B email
05:34
marketing space, because she
05:38
found a need, essentially, for
05:38
identifying if emails got
05:42
delivered for large corporations
05:42
like Best Buy, and IBM and
05:46
American Express, Victoria's
05:46
Secret, and there was just
05:49
nothing out there.
05:50
She's like, do you want to do
05:50
this? It was in the .com, bust
05:53
era where the company I'd been
05:53
working, was working for, was
05:56
slowly dying off. And I said,
05:56
Sure, why not. It was really
06:00
that simple, where we started a
06:00
business, bootstrapped that
06:05
business, friends and family
06:05
money, I was sweat equity in
06:08
that first business. She brought
06:08
to the table $350,000 with her
06:12
friends and family. We just
06:12
never looked back, never raised
06:17
a dime beyond that, and managed
06:17
to build a healthy, successful
06:20
business that eventually, six
06:20
years later, was acquired.
06:23  Christina Sjahli
So that is
06:23
your first business, Pivotal,
06:28
right, which is an email
06:28
delivery platform.
06:32  Michelle Eichner
Yes.
06:33  Christina Sjahli
Now your
06:33
second business is Digitile.
06:37
What is the problem that your
06:37
company is solving? And what is
06:42
this all about with Digitile?
06:44  Michelle Eichner
Digitile is a
06:44
document tag management solution
06:47
for companies that use Google
06:47
Drive, and Dropbox. I was at a
06:52
company in New York, it was a
06:52
startup that happened to work on
06:56
machine learning language, that
06:56
automated writing email subject
07:01
lines, email copy, banner ads,
07:01
all sorts of display ads. In
07:05
that there, I had a team of 10.
07:05
On the marketing side, there was
07:09
at least 40 inside salespeople
07:09
who are constantly going back
07:13
and forth. We had to create a
07:13
high volume of content for
07:16
internal stakeholders, as well
07:16
as external stakeholders.
07:20
Slack was becoming prevalent,
07:20
and people would Slack us and
07:24
say, Where is the status sheet?
07:24
Where is this PowerPoint
07:26
presentation for this client.
07:26
And it really became obvious and
07:29
we had used Google Drive, the
07:29
development team used Dropbox,
07:33
the sales team used Salesforce.
07:33
Everybody use the a variety of
07:36
different cloud solutions to do
07:36
and manage everyday tasks to
07:40
solve specific departmental
07:40
needs, and it just became one of
07:45
those things where I picked my
07:45
head up and said, there's got to
07:48
be an easier way to distribute
07:48
content, there's got to be an
07:50
easier way to help our
07:50
colleagues find the files they
07:53
need quickly, without having to
07:53
go digging and knowing which
07:57
repository does that file live
07:57
in.
08:00
It started with a lot of
08:00
research trying to solve the
08:02
problem for my company, and
08:02
realizing that this was a big
08:06
ubiquitous problem. It wasn't
08:06
unique to the company I was
08:09
working for. It wasn't unique to
08:09
sales and marketing. It is
08:13
across the board, across all
08:13
companies, across all
08:16
industries, and across really
08:16
all departments. When I picked
08:20
up my head and said, there's
08:20
something here. There's plenty
08:23
of opportunity to use an
08:23
application that allowed us to
08:26
port and push all our files into
08:26
another application.
08:30
But today, with all the cloud
08:30
applications, we use just to
08:33
manage everyday projects and
08:33
tasks, my goal was to not
08:37
introduce yet another tool that
08:37
house files and so I said,
08:41
alright, let's find a way that
08:41
we can keep using the tech stack
08:45
that we had, provide a
08:45
cross-platform search engine,
08:48
but with a twist of being able
08:48
to organize it and add
08:51
contextual information through
08:51
tags that allow you to find what
08:54
you're looking for much faster.
08:56
So every day, we all face this,
08:56
where we use either Google
09:01
Drive, Dropbox, OneDrive, some
09:01
big large storage device of
09:04
which we can't find our files.
09:04
There's layers and layers of
09:08
folders, tens and thousands of
09:08
files of which, frankly, you
09:13
don't really care where it is,
09:13
you just want to find it so you
09:16
can get your task done. Digitile
09:16
helps business employees
09:22
organize their documents through
09:22
the process of being able to tag
09:26
their files in a meaningful way
09:26
that has contextual meaning. It
09:31
gives you multiple paths to go
09:31
find that file so that you're
09:34
not just going folder through
09:34
folder through folder and
09:37
drilling down all the way to try
09:37
to find your file.
09:40  Christina Sjahli
Okay, so your
09:40
target market, I'm assuming, big
09:44
businesses.
09:46  Michelle Eichner
It is. I mean,
09:46
interestingly enough, businesses
09:48
of all sizes, use cloud storage
09:48
repositories, we happen to focus
09:53
on a handful of verticals that
09:53
just align well, but the
09:56
e-commerce vertical, technology
09:56
companies, actually residential
10:00
real estate firms, because they
10:00
store tons of imagery in Google
10:05
Drive or Dropbox. They need to
10:05
then post their inventory online
10:09
and get people to come visit
10:09
their open houses, legal offices
10:13
need to tag their files, as far
10:13
as all the contracts that they
10:17
have.
10:18
We tend to focus on the
10:18
marketing and sales teams,
10:20
within companies because they
10:20
create and produce and
10:24
distribute a ton of content just
10:24
even internally amongst
10:27
themselves.
10:28  Christina Sjahli
When did you
10:28
start Digitile?
10:30  Michelle Eichner
I corporated
10:30
in 2017, I think we really
10:33
started putting some development
10:33
behind it in 2018, with some
10:38
third-party people that helped
10:38
me just get some basic MVPs
10:41
together, so I could put it in
10:41
front of some customers. Then we
10:44
started with a, I'll say, a full
10:44
time developer in probably
10:49
mid-2018, when we had enough
10:49
proof points that we were on to
10:53
something. So we took slow
10:53
steps, and we bootstrapped it
10:57
out of the gate. I think that
10:57
that contributed to probably the
11:01
slower start as well.
11:02  Christina Sjahli
That's what I
11:02
was going to ask because this is
11:04
a technology company, and it
11:04
requires upfront capital, and
11:11
then I know that only recently
11:11
you successfully raised a seed
11:15
round for Digitile, I guess that
11:15
answer my question, you
11:19
basically bootstrap it for the
11:19
first three years, I guess.
11:23  Michelle Eichner
That's
11:23
correct. I put in my own cash,
11:26
about, not quite $300,000, to
11:26
support the initial year and a
11:30
half MVP, MVP 2 probably.
11:30
Eventually, we started seeking
11:35
out a couple angel investors.
11:35
Then eventually, we went into a
11:39
more formal seed round and
11:39
raised a million dollars.
11:42  Christina Sjahli
With your
11:42
first company, you bootstrapped
11:44
it all the way, until later you
11:44
exited, it got acquired. With
11:51
Digitile, you bootstrapped it,
11:51
and then now you went to angel
11:56
route. You got seed ground now.
11:56
That's where you use capital
12:02
raising special purpose vehicle,
12:02
right, with Assure. If you can
12:06
share why you choose to raise
12:06
capital with Digitile, but not
12:11
with Pivotal, your first
12:11
venture.
12:14  Michelle Eichner
This is where
12:14
the business model, the price
12:18
points, and I'll say the go to
12:18
market strategy, differ. In the
12:22
first business which exit is
12:22
called Pivotal Veracity, that
12:26
price point, the ASP for the
12:26
product that we were selling,
12:29
was a minimum, let's say it this
12:29
way, of $1200 per month on a MRR
12:35
perspective. Currently with
12:35
Digitile, it's a $10 per user
12:40
per month model to start out the
12:40
gate. There's a big difference
12:45
as far as the amount of volume
12:45
we need.
12:47
Digitile, in order to gain
12:47
obviously enough revenue and
12:50
build up the revenue stream, in
12:50
order to be able to sustain,
12:53
I'll just say breakeven level,
12:53
we'll make the profit versus my
12:57
first business, both businesses
12:57
have been very lean to start
13:00
with. But at the same time,
13:00
because the business model and
13:04
the average selling price of
13:04
Pivotal Veracity was a minimum
13:07
of $1200 per month. You need a
13:07
lot less clients to get to a
13:11
point where you can at least
13:11
breakeven on the business
13:14
compared to my current business
13:14
where it's a much much, much
13:18
lower ASP, that has a lot.
13:18
everything to do with how we've
13:22
been able to go to market. But
13:22
the point on why we chose to go
13:27
the first business didn't need
13:27
to raise capital, it was just
13:29
successful after about the first
13:29
year where we were starting to
13:33
break even eventually, we
13:33
started to pay ourselves as
13:36
founders in your queue. And we
13:36
just continued from there.
13:40
This business, just the sheer
13:40
volume that's needed and the go
13:44
to market strategy is more of a
13:44
digital strategy. The other one
13:47
was more of a direct sell. But
13:47
again, because you didn't need
13:50
as many customers because of the
13:50
average selling price, we were
13:53
able to get there faster. The
13:53
other thing is the go to market
13:57
strategy or the competitive
13:57
landscape. In the first
14:00
business. There was one other
14:00
company that did this technology
14:04
in this email deliverability
14:04
space
14:06
We kind of laughed because we
14:06
were much smaller. We were at
14:09
the height of our business. When
14:09
we sold we were 10 people and
14:14
went from sort of zero to 5
14:14
million sold it for 22 million,
14:18
and our competitor was about 100
14:18
people and probably $30, $40,
14:21
$50 million in sales. We were
14:21
probably the what we would say
14:25
over-engineered, under marketed
14:25
business and they were
14:29
over-marketed and
14:29
under-engineered as far as not
14:32
having as good of product.
14:33
Today things are different. That
14:33
was in 2003. There's a lot more
14:37
SaaS cloud companies out here
14:37
competing. People move quicker
14:41
people do raise capital, they
14:41
have a lot of capital to get
14:44
them somewhere faster. So we
14:44
need to be able to capitalize on
14:49
the market and get to market
14:49
quick and make a market and be,
14:53
kind of that first mover, as far
14:53
as the overall idea of making
14:58
Google and Dropbox easier to
14:58
use, it's not rocket science,
15:02
per se. So you've got to really
15:02
kind of look at the landscape
15:06
and say, I need to move quickly
15:06
in order to make this grow
15:09
quickly and become an
15:09
interesting business.
15:12  Christina Sjahli
So let's say
15:12
in hindsight, you built or found
15:17
out or founded Digitile back in
15:17
2000, do you think you still
15:22
need to raise capital?
15:24  Michelle Eichner
It's a good
15:24
question. I mean, this business
15:26
definitely has more upfront,
15:26
I'll say back end costs, then,
15:31
although something very
15:31
interesting between 2000. And
15:33
now, server cost, hosting fees,
15:33
this is this, pretty, much
15:38
predated in 2003, predated AWS.
15:38
Hosting fees back then were
15:44
outrageous, comparatively to
15:44
today. So it was expensive, back
15:49
then, to start a business in the
15:49
cloud space and SaaS and our
15:53
costs, the capital, we did have
15:53
pretty much, went to that.
15:56
We kept lean on the employee
15:56
front. So we had a good product.
16:00
So it's a hard one to answer
16:00
because there was way less
16:03
competition and we happen to get
16:03
lucky and get into a space that
16:06
had almost no competition.
16:06
Additionally, we were in a space
16:09
that was in a must-have, it was
16:09
the wild wild west in email
16:13
marketing back in the early
16:13
2000s. That's another big
16:16
difference, which is companies
16:16
didn't- needed their emails to
16:19
be seen, our system allowed them
16:19
to identify if the ISP is we're
16:23
going to deliver it to the
16:23
inbox, a spam folder, or
16:25
outright block it.
16:27
If things were blocked, then in
16:27
the day BestBuy, who has a big,
16:31
you know, force back then, if
16:31
their emails didn't get
16:34
delivered, then they lost out on
16:34
revenue. And lost revenue, of
16:37
course, is a must have must
16:37
overcome thing. So that's
16:41
another thing that comes into
16:41
play, which is, is your product
16:44
a must-have or a nice-to-have?
16:44
And I think we are growing, the
16:49
product Digitile has, is
16:49
becoming a must have. But it's
16:53
also an education as far as why
16:53
it's a must have and how much
16:57
you can save because it's a
16:57
little bit of a, when you can
17:00
tie the business to revenue,
17:00
it's very easy to make that ROI
17:05
case.
17:05  Christina Sjahli
Yeah, that's
17:05
right.
17:07  Michelle Eichner
Yeah. When
17:07
it's sort of like, look, I can
17:09
improve your employees
17:09
productivity, you get you get
17:12
the eye raise of okay, sure.
17:12
That's nice. But that's not
17:17
cash. Right?
17:18  Christina Sjahli
Yeah.
17:19  Michelle Eichner
It's harder to
17:19
prove out, but because it's a
17:23
repetitive problem, because it's
17:23
something that they you know,
17:26
employee and oftentimes the
17:26
decision maker has had that
17:29
problem, knows the problem
17:29
personally, we overcome that
17:33
relatively quickly. It's sort of
17:33
like, oh this isn't, I have to
17:37
have this because I don't like
17:37
wasting my time. So we've gotten
17:42
over the ROI hump, if you will,
17:42
because so many people have this
17:45
problem, and their decision
17:45
makers quickly identify that
17:49
they themselves absolutely have
17:49
had this issue. And then of
17:51
course, their employees, and
17:51
they just want to make things
17:54
easier for their employees.
17:56  Christina Sjahli
I laugh
17:56
because I'm thinking when you
17:59
said like, it's nice to have
17:59
they need it. But it's kind of
18:02
like nice to have, because it's
18:02
really not increasing their cash
18:06
flow. I always think about
18:06
marketing and finance, because
18:10
marketing increase their cash
18:10
flow, their revenue. And and
18:14
finance is always seen as
18:14
expense. Nice to have, until
18:18
it's hurting them. And then I
18:18
think it's the same with
18:21
Digitile, the solution that
18:21
Digitile is trying to solve. And
18:24
it's a lot of education that you
18:24
have to share with your audience
18:29
to make them understand why they
18:29
need it, and then how can this
18:32
solve their problem there before
18:32
it's too late?
18:35  Michelle Eichner
That's right,
18:35
correct.
18:37  Christina Sjahli
I'm curious
18:37
about this. When you started
18:39
Digitile, did you know that
18:39
eventually, you will need to
18:44
raise capital?
18:46  Michelle Eichner
No, I guess I
18:46
went in eyes wide open. And
18:49
having done that done it the
18:49
first time without raising
18:51
capital and hearing an
18:51
understanding from other
18:55
companies and other co founders,
18:55
the implications of capital
18:58
because there are implications
18:58
on capital raising, I went in my
19:01
eyes wide open and didn't make a
19:01
pre-determined decision. This is
19:05
how it's going to be. I really
19:05
just sort of let the process
19:08
write itself out to the point of
19:08
which there were things that we
19:11
needed to prove to ourselves
19:11
that we had a product, that we
19:14
were prepared to have a
19:14
conversation with investors,
19:18
whether that be angel investors,
19:18
whether that be VC type of
19:21
investors, and either way, we
19:21
needed to prove to ourselves and
19:26
to the market, that we had a
19:26
viable product.
19:30
When we got to that point,
19:30
that's when we made the decision
19:32
that says okay, we're at a point
19:32
that we're going to need more
19:36
capital in order to do X, Y, and
19:36
Z, build up use cases that the
19:39
market actually was asking us to
19:39
solve for. Then, again, the idea
19:44
that we wanted to do it quickly
19:44
in order to be able to solve
19:46
this problem and have the first
19:46
mover rights, if you will.
19:51
We wanted to understand the
19:51
competitive landscape, the
19:54
market's appetite for the
19:54
problem, the market's desire to
19:57
solve that problem, the market's
19:57
willingness to pay, and what the
20:01
market would bear as far as
20:01
pricing, and what the resources
20:04
would be for us to build this
20:04
business and support it at
20:08
scale. And once we identified
20:08
all of those components, then we
20:11
started having the conversations
20:11
of, "Okay, it's time to pick up
20:15
our heads and look at options to
20:15
raise capital."
20:18  Christina Sjahli
So when you
20:18
started thinking about all of
20:20
these components, and how you
20:20
want to scale the business, did
20:25
you put something together in
20:25
terms of the financial model?
20:29
Because it cannot be just in
20:29
your head.
20:32  Michelle Eichner
Yeah, and even
20:32
before we even raised capital.
20:36
Out of the gate, we put together
20:36
models and, as you can
20:39
appreciate, and as any founder
20:39
can appreciate, your initial
20:42
models are based on wide
20:42
assumptions, because you don't
20:45
know enough. And so we continue
20:45
to refine the model, as we build
20:50
out our MVPs. I'll say we
20:50
definitely have more than one
20:53
MVP, because we knew more, we
20:53
could identify assumptions that
20:57
we previously had to make
20:57
guesses at, if you will, and
21:00
hone that.
21:01
We continue to make assumptions
21:01
like we are not a mature
21:05
business at this point. So
21:05
despite the fact that we
21:08
actually have a solid business,
21:08
we have a solid set of customers
21:11
and paying customers and a bunch
21:11
of free customers who need to
21:14
have a free entry point, we
21:14
still have to make assumptions,
21:17
because we are not a mature
21:17
business, and we refine our
21:20
models at least once a year, if
21:20
not actually twice a year at
21:25
this point.
21:25  Christina Sjahli
I get it. At
21:25
the very beginning, everything
21:28
is assumption. But it's a
21:28
starting point, because once you
21:31
have the first set of
21:31
assumptions, as your business is
21:35
growing and progressing, and you
21:35
figure out your MVP, you figure
21:39
out your business model, you
21:39
figure out your pricing, you
21:42
figure out your marketing
21:42
strategy, all those assumptions
21:46
are changing.
21:48
When you have a model, it's easy
21:48
for you to basically plug in
21:52
what are those changes, then you
21:52
can see what are the impact in
21:57
the short term, medium term and
21:57
long term. That's when you can
22:00
make a strategic decision at
22:00
what point you're going to run
22:04
out of cash, and what point that
22:04
you need to start raising
22:08
capital.
22:09  Michelle Eichner
It absolutely
22:09
is. I mean, everything's a
22:10
hypothesis until you prove it.
22:10
You start with your hypotheses,
22:15
then you start to hone those
22:15
hypotheses. We have absolutely
22:18
changed our model over the
22:18
couple years. We are now on
22:22
probably our fourth model. We
22:22
understand absolutely what our
22:26
value prop is, we understand a
22:26
heck of a lot more today than we
22:29
did even a year ago.
22:31
Even server costs. Things that
22:31
just you can't anticipate early
22:34
on, as far as load to actually
22:34
understand and appreciate how
22:38
many servers you have to spike
22:38
up and spike down through
22:42
throughout any given week.
22:42
There's all these variables that
22:46
you just can't appreciate until
22:46
you're scaling a business and
22:50
have the volume to be able to
22:50
appreciate the reality of the
22:55
spend, if you will.
22:56  Christina Sjahli
When you see
22:56
you change the model. Right now,
22:59
it's a subscription model with
22:59
Digitile, Has it always been the
23:03
plan that it's going to be
23:03
subscription, or did this model
23:06
evolve over the last three
23:06
years?
23:09  Michelle Eichner
So no, it was
23:09
always a SaaS subscription
23:11
model. The things that have
23:11
changed for us are, so when we
23:16
think about the organic traffic
23:16
to the website, when we think
23:19
about the paid traffic to the
23:19
website, when we think about the
23:22
number of seats per company that
23:22
we sell into the average selling
23:27
price, the assumptions that go
23:27
into the model making, if you
23:31
will. We've been able to expand
23:31
those assumptions or add new
23:35
variables as a result of trying
23:35
and testing new things or
23:40
identifying things that we
23:40
didn't know about ourselves in
23:42
the early days.
23:43
A good example is, in the early
23:43
days, we assumed we were going
23:47
to get X amount of users per
23:47
company. What we've identified
23:51
is we tend to get a smaller
23:51
handful to kick the tires and
23:54
understand that this is a
23:54
product that they want to roll
23:56
out, and then how much time it
23:56
takes them to actually roll the
24:00
thing out, how long it takes
24:00
them to adopt, and then roll
24:05
out. Those are things you aren't
24:05
gonna understand and appreciate
24:08
in the early days.
24:10  Christina Sjahli
Yes, because
24:10
you don't know you haven't tried
24:12
it. You didn't have any
24:12
customers. Even your marketing
24:15
strategy, you may target it one
24:15
area, and then you figure out,
24:18
oh, it's not working, and then
24:18
you really have to tweak it. And
24:21
I think the important here that
24:21
I want to share with my
24:24
audience, it's really, once you
24:24
receive the data, even when you
24:29
start measuring your marketing,
24:29
it's really important to
24:33
identify what are those metrics,
24:33
and then what are the changes
24:37
that you need to make in your
24:37
model to make it more
24:41
reasonable, instead of just
24:41
continuing with the same
24:44
assumption. The market change,
24:44
your customer may change, the
24:48
way they behave may change, and
24:48
then all of those must be
24:51
described or inputted into the
24:51
model, in my experience.
24:56  Michelle Eichner
Absolutely, I
24:56
mean, I can tell you the price
24:58
point that we started with has
24:58
changed as we've identified
25:02
value and the value proposition
25:02
to the market. With more
25:07
knowledge and more customers,
25:07
we're now able to put packages
25:10
together that are higher. We
25:10
have team and enterprise types
25:15
of packages that reduce the
25:15
number of total customers we
25:19
have, because we're now
25:19
generating more revenue per
25:21
customer, right. It takes
25:21
pressure off different parts of
25:24
the model, in order for us to
25:24
hit our forecast.
25:27
There's just all these variables
25:27
that you have to review on a
25:32
regular basis. No, and that's
25:32
something really important for
25:35
every entrepreneur and every
25:35
startup is the founders better
25:38
know their numbers, and have a
25:38
really good handle on where the
25:43
ball I can look at our model
25:43
and tell you if I think about a
25:46
funnel, sales funnel, marketing
25:46
funnel, I need to bring more
25:50
people at the top of the funnel,
25:50
right in order to get them
25:53
through the funnel. But I can
25:53
tell you, where we're doing a
25:56
good job where we're not doing a
25:56
great job and where we can make
25:59
improvements.
26:00
By knowing all these, I've been
26:00
able to pull levers and say,
26:04
"Okay, I have a reasonable
26:04
amount of people coming to us
26:06
and reasonable people using our
26:06
free trial." I actually have a
26:10
decent amount upgrading where
26:10
our assumptions fell down is the
26:14
number of users per account. So
26:14
I'm like, okay, how do we work
26:18
on getting the number of initial
26:18
users per account higher? Or how
26:22
do we get more people in that
26:22
account to add what we call seed
26:25
expansion, add more users
26:25
quicker, because it takes some
26:29
time for the value, for them to
26:29
understand time to value.
26:34
Those are the kinds of things as
26:34
businesses become more mature.
26:37
By no means are we fully
26:37
thriving, mature business like
26:42
Basecamp or HubSpot. But we know
26:42
enough to know what levers
26:46
within that funnel that we need
26:46
to pull in order to do a better
26:49
job in order to hit our revenue
26:49
metrics.
26:52  Christina Sjahli
Yes,
26:52
absolutely. I don't think you
26:54
need to be in the size of
26:54
Basecamp to do all of this
26:57
thing. It's interesting enough,
26:57
because I was just talking on a
27:02
blog post that I published last
27:02
week about tracking a marketing
27:06
result, and then how marketing
27:06
results can really paint a
27:10
financial pictures. It's not
27:10
only about the revenue, it's
27:14
also about your marketing
27:14
expense.
27:16
Do you want to invest more in
27:16
certain area and then in certain
27:20
campaign? If you don't
27:20
understand your customer
27:22
journey, it's really hard to
27:22
tweak what works, what doesn't
27:26
work. You're going to be wasting
27:26
resources. Before you choose
27:31
capital raising special purpose
27:31
vehicle, did you consider other
27:36
type of financing for Digitile?
27:39  Michelle Eichner
Yeah. We went
27:39
down probably all traditional
27:42
paths, and met Assure syndicate.
27:42
There's some interesting
27:46
advantages to the SPV. An SPV
27:46
makes it easier to really manage
27:52
smaller individual investors.
27:52
When you are a small company,
27:56
startup, you're not getting
27:56
typically one VC, because you
27:59
probably don't have, you're not
27:59
ready for a seed, Series A kind
28:03
of round. You tend to go after
28:03
high net worth people: angel
28:08
investors. One of the many nice
28:08
things about the SPV, if you
28:12
will, is they can help you
28:12
create a single point of
28:15
communication there as they
28:15
consolidate investors.
28:19
Cap tables, but management is an
28:19
important aspect. And again, I
28:22
didn't appreciate cap tables,
28:22
because my first business was
28:26
bootstrap. But I've now come to
28:26
appreciate cap table management,
28:30
in and of itself an important
28:30
aspect. You want to have as few
28:34
frankly, people on your cap
28:34
table or investors on your cap
28:38
table, A) because it becomes a
28:38
lot to manage your investors,
28:42
and then you spend time managing
28:42
your investors over managing the
28:45
business, if that cap table gets
28:45
super large.
28:49
An SVP can consolidate and in
28:49
bring investors together under
28:54
one entry on the cap table.
28:54
That's a nice advantage. They
28:58
communicate to the investors. So
28:58
you're essentially communicating
29:02
to one as opposed to
29:02
communicating to a variety, a
29:05
list of whatever 10 plus angel
29:05
investors. The other interesting
29:10
thing is we had a minimum of 50k
29:10
investment minimum to invest in
29:15
Digitile. There are investors
29:15
that just can't afford a 50k
29:21
minimum.
29:22
Another advantage of the SPV
29:22
that Assure syndicate brings is
29:26
A) if we did have investors that
29:26
wanted to invest something less
29:30
than 50k, we can send them
29:30
through the SPV vehicle, and
29:34
they can invest 10,000 because
29:34
it's all consolidated. With the
29:39
SPV, we clearly, not only they
29:39
meet the 50k minimum, but
29:45
surpass that. There's some
29:45
advantages for the founder to
29:48
work with in Assure and the SPV,
29:48
because they they bring some cap
29:53
table benefits, some investor
29:53
benefits, as it pertains to,
29:57
again, this minimum requirement
29:57
that you might have as far as
30:01
the minimum amount you're
30:01
willing to take.
30:04
They can help you traverse the
30:04
process. They introduced us to a
30:07
host of different investors.
30:07
What was nice is they really got
30:12
to know our business, they
30:12
understood the business where
30:15
the stage, this what stage the
30:15
business was in, they've been
30:19
aligned us with investors,
30:19
because they then understand
30:22
what the investors appetite is
30:22
to invest in certain types of
30:25
business, like what kind of
30:25
thesis what type of stage
30:29
investor is the investor willing
30:29
to work with?
30:33
They marry essentially, right,
30:33
the investors with the startup,
30:38
and they do a lot of the
30:38
pre-work of saying these are
30:41
targeted investors that are
30:41
highly likely to be investors,
30:47
and make sense, based on what
30:47
your business is, what stage
30:50
it's in, and the thesis that
30:50
you're solving,
30:52  Christina Sjahli
instead of you
30:52
looking yourself to the
30:56
different investors, and then
30:56
you're trying to match your
30:59
value to the investors, Assure
30:59
is basically creating the space
31:05
where they give you a list of
31:05
investors, and that already
31:09
match to what you are looking
31:09
for. Is that right?
31:13  Michelle Eichner
Yeah, they
31:13
screen to say it that way,
31:15
right? They understand the
31:15
investors in their community,
31:19
and then of course, they
31:19
understand the company like
31:21
Digitile, and they bring the two
31:21
together. If there's somebody in
31:26
the investment community that
31:26
doesn't have an appetite for
31:28
early stage, obviously company
31:28
like Digitile, they would never
31:32
brought us together.
31:34
I didn't have to spend an
31:34
unreasonable amount of time
31:37
trying to identify the right
31:37
target. So there's just the
31:39
whole process of raising
31:39
capital. And you don't just go
31:43
and start knocking on VCs doors,
31:43
you need to identify the VCs,
31:48
essentially, what stage they're
31:48
willing to invest in, what type
31:51
of thesis they have, you start
31:51
to understand the partners, the
31:54
types of companies they invest
31:54
in. You probably go and talk to
31:57
the companies they invest in.
31:59
Raising capital is very time
31:59
consuming. The big benefit is it
32:03
helped me cut down on a lot of
32:03
those processes that are part of
32:06
the traditional capital raise,
32:06
because they knew enough about
32:09
their investor community. They
32:09
knew enough about Digitile. And
32:12
then we had dozens of
32:12
discussions with what I would
32:15
consider highly qualified
32:15
investors.
32:18
That just helped me cut to the
32:18
chase, and my, the quality of
32:21
conversations I had with the
32:21
investors that Assure syndicate
32:26
brought to the table, were 10
32:26
times more qualified and
32:30
interesting and valuable
32:30
conversations to me as a founder
32:34
and a business than the ones
32:34
that I was having prior to
32:38
having met Assure.
32:39  Christina Sjahli
So you already
32:39
approached a few VCs before you
32:44
met with Assure syndicate?
32:47  Michelle Eichner
Yes, many,
32:47
many, many, many, many, many.
32:52  Christina Sjahli
So the other
32:52
thing that you mentioned, it's
32:54
about you requested for a 50,000
32:54
minimum investment. How did you
33:00
determine that amount?
33:01  Michelle Eichner
It really had
33:01
to do with cap table management.
33:03
We wanted to make sure that we
33:03
didn't have, I'll say dozens and
33:07
dozens of small investors. We
33:07
felt that 50,000 certainly was a
33:12
number that would not your
33:12
average person would be able to
33:17
invest a minimum of $50,000. It
33:17
was really just one of those
33:21
things that we said, as a part
33:21
of cap table management, we were
33:25
going to put this down on paper
33:25
and and kind of stick to it to
33:29
help us manage the cap table.
33:31  Christina Sjahli
So at the end,
33:31
as a result of working with
33:33
Assure you basically only have
33:33
one shareholder on your cap
33:37
table, which is the SPV.
33:39  Michelle Eichner
We actually
33:39
have a couple of angel investors
33:41
that we married up with prior to
33:41
Assure. And we have another VC
33:45
that I actually met through
33:45
assure that is also part of it
33:49
that did their own, sort of is
33:49
on the cap table on their own.
33:51
But it was a result of having
33:51
been involved in met with
33:55
Assure. So we do have a few more
33:55
than that, than the one but yes,
33:58
the concept is, the smaller you
33:58
can keep your cap table, the
34:02
less headache, if you will, for
34:02
the founder, and the less
34:05
overall work because they then
34:05
communicate, you communicate to,
34:10
in this case Assure, on a
34:10
quarterly basis, and then they
34:13
then communicate with their with
34:13
all the investors that are
34:16
investing in your portfolio.
34:19  Christina Sjahli
What do they
34:19
need to communicate with the
34:21
investors?
34:23  Michelle Eichner
We're on the
34:23
hook on a quarterly basis to
34:25
provide our numbers, you know,
34:25
give us a sense of where the
34:28
businesses where we're going,
34:28
what we've learned, what's the
34:31
strategy to continue to grow,
34:31
and I'm sure they communicate
34:34
all those aspects to their
34:34
investors.
34:36  Christina Sjahli
Then you have
34:36
to do the same with the other
34:38
shareholders within your cap
34:38
table.
34:41  Michelle Eichner
Correct.
34:42  Christina Sjahli
Now, if you
34:42
can think of a checklist for
34:45
capital raising, what would be
34:45
the items included in your
34:49
checklist that you can share
34:49
with my audience?
34:51  Michelle Eichner
I think you
34:51
need to really evaluate the
34:54
stage of your company before you
34:54
start to invest. Be prepared to
34:58
know, know your numbers. The
34:58
majority of companies that get
35:03
invested in have some track
35:03
record with some revenue, or at
35:07
least user growth, it can talk
35:07
through their numbers as
35:10
pertains to number of users on
35:10
their service or product. You
35:14
need to have a great elevator
35:14
pitch, be able to explain the
35:17
problem you solve succinctly;
35:17
and customer references. This
35:22
one is interesting, because it
35:22
also goes to back to you just
35:25
having a business that has some
35:25
track record.
35:28
Many VCs want to speak directly
35:28
with your customers, you have to
35:31
be very prepared, and have
35:31
conversations with a few people
35:34
that can explain why they feel
35:34
your product or service solves
35:37
their pain point. Because many
35:37
VCs want to speak directly to
35:41
your customers, so that they can
35:41
get a sense from someone other
35:45
than you, as far as the value
35:45
your product provides to the
35:49
market.
35:49
Develop a database of targeted
35:49
VCs, I think initially we we
35:53
were not targeted, which is
35:53
where I wasted some of my time.
35:57
And you want to align those VCs
35:57
with what stage your businesses
36:01
and the thesis of their business
36:01
right, some clearly state that
36:05
they work with growth companies,
36:05
growth companies are more like a
36:08
series A, you have to identify
36:08
what the VCs thesis is, in order
36:12
to know whether or not you're a
36:12
good fit to even approach them.
36:16
A well thought out pitch deck
36:16
that explains the story from the
36:20
problem to the market, the value
36:20
prop, gross potential, how
36:24
additional capital will be used
36:24
to grow the business. Those are
36:27
all important pieces I'd have on
36:27
my checklist.
36:30  Christina Sjahli
I heard
36:30
different things from different
36:32
founders when they are doing
36:32
capital raising. And also I
36:36
heard different things from
36:36
theses. When you say
36:40
well-thought pitch deck, how
36:40
important it is to understand
36:46
your financial numbers in order
36:46
to create a well bought pitch
36:51
deck is that something that
36:51
founders need to understand very
36:56
well and then create the model,
36:56
or they can fly by without one.
37:01
It's interesting.
37:02  Michelle Eichner
When you're
37:02
early, and you're pre revenue,
37:05
your numbers as you and I
37:05
discussed in the beginning,
37:08
right? You don't know your
37:08
numbers, because they're really
37:11
more assumptions and you're
37:11
trying to prove out your
37:14
assumptions. It's not that they
37:14
don't expect things to change at
37:17
this stage. Okay, we are still
37:17
not a mature business, things
37:21
are never, I'm putting together
37:21
new pricing packaging now of
37:25
which I still, I have a good
37:25
sense that I think the market
37:28
will bear. But in reality, we'll
37:28
see how that plays out.
37:32
I'm going to add more features
37:32
of which I think we'll be able
37:35
to command a higher average
37:35
selling price. And that will
37:38
come into play later in the
37:38
year. So at the end of the day,
37:42
certainly if you're going to a
37:42
seed round, if someone's going
37:45
to invest 1,000,002, you know,
37:45
2.5 million, 3 million, whatever
37:49
that number is, they expect to
37:49
see a very well thought out
37:52
business financial model that
37:52
makes sense, based on not
37:56
assumptions, frankly, right.
37:56
This is something that you can
37:59
predominantly prove out and you
37:59
may be wrong, as far as how much
38:03
or how little in some areas, but
38:03
the specifics, and where you're
38:07
going to put pour money into
38:07
within that funnel.
38:12
Absolutely, you have a very good
38:12
understanding of where to pour
38:15
money or where to reduce spend,
38:15
and now it's just a matter of,
38:19
we're always going to be
38:19
testing. It's never gonna stop,
38:23
we are going to continue for
38:23
probably years continuing to
38:26
test different variety parts of
38:26
that whole funnel process. But
38:29
you know the levers to to pull,
38:29
and you know why you need to
38:33
pull those levers. And it's not
38:33
that you're always going to make
38:35
the right decision of the
38:35
specific lever, you know, the
38:38
tactic that you took, but you
38:38
know, those levers at this point
38:42
of what you need to push.
38:44  Christina Sjahli
I think there
38:44
is a misconception out there
38:47
that I feel founders thinks
38:47
about finance and then when they
38:51
are creating a financial model,
38:51
there is a belief out there that
38:55
it has to be set in stone and in
38:55
reality, your business is not
38:59
going to stay the same over
38:59
time. It's always going to be
39:02
changing. I believe that having
39:02
a financial model, you will be
39:07
able to look at it and then as
39:07
you explain it, you know which
39:12
levers you need to pull.
39:14
Sometimes it could be your
39:14
pricing, which is related to
39:18
revenue. Sometimes it could be
39:18
your expenses, your investment.
39:22
Sometimes it could be looking at
39:22
your marketing funnels. I think
39:28
when you are creating a
39:28
financial model that is granular
39:33
not to overwhelm you, but enough
39:33
for you as a founder to
39:37
understand what's the story
39:37
behind the model. Then you
39:41
become more confident to speak
39:41
to investors. Here's another
39:46
thing I want to ask you. Do they
39:46
only care about revenue? Or do
39:50
they also care, your expenses
39:50
and your future investments.
39:55  Michelle Eichner
They
39:55
absolutely want to see revenue
39:57
from an appreciation of
39:57
understanding the past and the
40:01
timeline right to grow. Having
40:01
said that, I also believe that
40:06
they want to see, I've actually
40:06
had to share the you know, how
40:10
are we spending that money so
40:10
that they have a good
40:12
appreciation of, does everything
40:12
line up, like both parts of the
40:17
equation have to line up, which
40:17
is, here's the revenue growth on
40:20
the neck yet. here's how I'm
40:20
going to spend that money, they
40:24
kind of go hand in hand, right?
40:24
There should be a correlation to
40:28
how you're going to grow that
40:28
business.
40:29
So in some cases, you have to
40:29
add more server cost in, least
40:33
in our case, in order to be able
40:33
to sustain more and more volume.
40:37
Well, that's going to make sense
40:37
that my web hosting fees go up.
40:41
It's not that they're going to
40:41
squawk at that. But it's just,
40:44
they're going to need to see
40:44
that you made the right
40:46
assumption, that you have a
40:46
model that lays it out.
40:50
You may under predict, or over
40:50
predict that spend in that
40:54
particular category. But you've
40:54
thought through that that
40:57
category will absolutely affect
40:57
it as your business continues to
41:01
grow. These things go together,
41:01
it's, it is definitely a puzzle.
41:04
If you think about puzzles, have
41:04
lots of pieces that link.
41:07
Everything has to be linked. And
41:07
you have to be able to
41:09
demonstrate the fact that the
41:09
totality of the financial model,
41:14
in conjunction with all the
41:14
parts make sense. And it's not
41:18
that any one lever may be
41:18
incorrect. It's just that the
41:22
logic behind the model is
41:22
worthy.
41:26  Christina Sjahli
Yes, I think
41:26
you said the key words right
41:29
there, Michelle. It's the logic
41:29
because even in your example,
41:34
and I seen this over and over
41:34
again, some venture, they're
41:38
asking for money, they're
41:38
creating this revenue growth
41:41
year over year. But some of
41:41
their expenses that is related
41:45
to that revenue growth stays the
41:45
same, that doesn't make sense.
41:48
When I'm looking at it, or even
41:48
investors that understand
41:52
financial numbers, they're
41:52
saying, okay, you're growing
41:54
your revenue.
41:56
But does it really make sense
41:56
that you're not going to make
41:59
some of your expenses higher? If
41:59
it doesn't make sense, then how
42:04
is that reasonable that you're
42:04
saying your profitability is X
42:09
could be lower. That is, the
42:09
logic behind the model is the
42:14
most critical thing, and then
42:14
see how each pieces are
42:19
connected together. There is no
42:19
one size fits all.
42:23
Finance is really not a
42:23
standalone process. It's really
42:27
connected to other things. It's
42:27
connected to HR, it's connected
42:30
to capital raising, it's
42:30
connected to marketing, sales,
42:34
everything. So yeah, you brought
42:34
up a really, really great point.
42:39
Based on your experience, is
42:39
there anything that you think if
42:46
you're going to exit another
42:46
business later on, that you will
42:50
do differently?
42:52  Michelle Eichner
This time,
42:52
I'll share an interesting story.
42:55
This is very pertinent to
42:55
technology companies in the sale
42:59
the first business so like every
42:59
startup tends to use open source
43:03
technology. You build these
43:03
products of which you hopefully
43:07
build very solid and are
43:07
comfortable with it, and
43:10
someone's willing to acquire
43:10
that technology and the people
43:14
with it. When we went through
43:14
the M&A process the first time
43:17
around. In my first business, we
43:17
got an education level on the
43:23
open source technology that we
43:23
were using, that the company
43:26
that was doing the M&A wanted to
43:26
examine the source code to
43:30
identify if the open source
43:30
technology that we were using
43:34
was, if you will, licensed in a
43:34
manner that we could use that
43:39
open source technology without
43:39
financial payment to the
43:44
original coder or the open
43:44
source software that we were
43:48
using.
43:48
This is interesting because this
43:48
was a learning, I didn't know
43:52
the first time around, and so we
43:52
were expected to put our source
43:56
code through these other
43:56
software companies, I'll say
43:59
model, that then analyze all of
43:59
the open source code that we had
44:03
used to build our first
44:03
business, and identify the
44:07
license agreements with all of
44:07
those open source. So what most
44:11
founders don't know when we are
44:11
out there. Some founders are our
44:15
developers, some founders are on
44:15
the business side and then have
44:17
developers building the
44:17
business.
44:19
You get to this point where the
44:19
open source products that we
44:23
use, the all of them come with
44:23
some kind of license, and then
44:27
it's a matter type of license
44:27
off of. Is it a license that you
44:36
can use and build off of but you
44:36
cannot make a profit off of? Or
44:42
there's another category is it
44:42
an open source software that if
44:46
you make a profit off of you
44:46
actually owe royalties to, for
44:49
whatever if those profits are.
44:49
This was a interesting and scary
44:54
moment in the sale of our first
44:54
business because we were unaware
44:57
of this. And so we sent our
44:57
software code off to be analyzed
45:01
by yet another software company
45:01
that does this for a living.
45:05
I'll say we had a whew moment
45:05
going, we were clean, meaning
45:09
there was really no license,
45:09
open source software license
45:13
that we were using that would
45:13
have diminished the value of our
45:18
product because we had to pay
45:18
royalties, or that we couldn't
45:22
physically use as a result of
45:22
making a profit. This is a
45:27
hidden thing that, until you go
45:27
through the M&A process, and if
45:30
you're certainly a business
45:30
owner, disconnected from the
45:34
development side, you would
45:34
never know something like this,
45:38
you wouldn't think of it. It is
45:38
one of those interesting hidden,
45:42
unless you've gone through the
45:42
process, and and/or you're a
45:45
developer, and are very aware of
45:45
these things, and conscious of
45:48
it.
45:48
So this time around, let me say
45:48
it this way, we are using a
45:52
bunch of open source without
45:52
question, and we have gone down
45:55
this process. We are going to do
45:55
an analysis back, we're going to
45:58
do it probably later this year,
45:58
of all the open source software
46:02
that we are using to identify
46:02
what license we do or don't
46:06
have, to use that for a
46:06
profitable business, for profit.
46:11
If we're using something in
46:11
violation, we will identify if
46:14
there's an alternative so that
46:14
we obviously don't have to worry
46:17
about that down the road. If
46:17
it's requires a royalty, right?
46:21
We're going to look for
46:21
alternatives. Because
46:24
eventually, I suspect, we'll get
46:24
acquired someday, and I don't
46:28
want to have to have that moment
46:28
of Oh, my God.
46:31  Christina Sjahli
Panic attack!
46:32  Michelle Eichner
Are they
46:32
buying a piece of software a
46:35
product that they can, with
46:35
confidence, sell and sell free
46:39
for a profit? That's something
46:39
that I'm going to change this
46:43
time around, because I now know
46:43
this. It's obscure, right, but I
46:46
guarantee you there are a
46:46
zillion software companies out
46:50
there that don't give you, that
46:50
have no idea that this exists.
46:53  Christina Sjahli
No, I
46:53
absolutely agree. I didn't know
46:56
about this. Interesting enough,
46:56
yesterday, I was just speaking
46:59
to a patent lawyer talking about
46:59
intellectual property, because I
47:04
realize not a lot of founders
47:04
understand what are the
47:08
differences between trademark,
47:08
copyright, trade secret,
47:13
industrial design and patent?
47:13
What are the steps that you need
47:17
to do to analyze if your
47:17
business have intellectual
47:21
property?
47:22
Here's another interesting part,
47:22
as I was doing my research: for
47:27
certain intellectual property,
47:27
you can actually get financing,
47:33
because intellectual property is
47:33
an asset. So if your
47:37
intellectual property, its value
47:37
at a high price, you can use
47:43
that to get financing. That is
47:43
really going back to what you
47:48  are saying
sometimes a due
47:48
diligence process uncover
47:51
something that a founder didn't
47:51
know, right? It's a learning
47:56
process. When do you think you
47:56
can start hiring a CFO on a
48:01
part-time basis?
48:02  Michelle Eichner
When I think
48:02
the business is to a point where
48:04
I am needed elsewhere, and the
48:04
business can afford to bring
48:09
somebody else on to do some of
48:09
these other financial components
48:13
of the business. I hope that
48:13
they come soon, because frankly,
48:16
I would love to offload it. It
48:16
is not something I like to do,
48:19
and I would much rather be doing
48:19
other things. But I do I do
48:24
these things, nights and
48:24
weekends. I started to do it in
48:26
my off time to keep our books up
48:26
and run our financial models and
48:30
things like that.
48:31  Christina Sjahli
I completely
48:31
agree with you. Not every
48:34
ventures not every startup
48:34
requires to have a part time
48:38
CFO. I think once the CEO
48:38
realize that the capacity limit,
48:46
it's up there, and you want to
48:46
focus to continue building the
48:52
business, then the pain point
48:52
may start to kick in.
48:58  Michelle Eichner
I will say
48:58
this though, Christina: I had
49:00
help initially. I had a resource
49:00
to help me initially set up the
49:06
books, if you will, right.
49:06
QuickBooks, the accounts, there
49:09
is absolutely a need to get it
49:09
right in the beginning. In fact,
49:13
I can speak to this even for my
49:13
first business, you absolutely
49:16
want to try to get yourself set
49:16
up correctly at the start. So
49:19
there is value to having
49:19
somebody help you who is
49:22
experienced and understand
49:22
someone like yourself who could
49:25
come in and at least play a role
49:25
at the onset, so that you're on
49:30
the right track, because
49:30
frankly, rectifying entries at
49:35
the end of the year to prepare
49:35
for taxes is also a massive
49:39
nightmare, and you're going to
49:39
handoff something that's going
49:41
to be very difficult to deal
49:41
with.
49:43
I do highly recommend every
49:43
startup having someone who they
49:48
can contact, who has knowledge,
49:48
I still reach out to people who
49:52
are knowledgeable. I have an
49:52
expert that I can call and ask
49:56
questions of, because I don't
49:56
know it all, and I don't have
49:59
time to know it all, and I don't
49:59
want to know at all. I actually
50:02
recommend you having someone in
50:02
your network that you pay when
50:08
you need the help. You need to
50:08
recognize when you need the
50:11
help, because it's just gonna
50:11
take you too much time to
50:14
explore it, learn it, and you
50:14
still may not execute correctly.
50:19  Christina Sjahli
You brought up
50:19
a really great point about
50:21
structuring the chart of account
50:21
correctly from the very
50:25
beginning. Because that is
50:25
something a lot of founders
50:29
miss. To rectify years and years
50:29
of data and classifying it into
50:36
the correct account and then
50:36
changing it from cash basis to
50:39
accrual. It's a nightmare.
50:39
You're gonna pay more at the end
50:43
of the day. Might as well you
50:43
set it up from the very
50:46
beginning.
50:47
I worked with someone that
50:47
almost went into bankruptcy,
50:52
because and then this is a
50:52
product-based business, because
50:55
the cost of goods sold was not
50:55
set up appropriately. So they
51:00
didn't realize there was a
51:00
leaking and and this is going
51:04
back to the accrual and the the
51:04
cash flow, right? People focus
51:08
on cash flow all the time, which
51:08
is great. But there is a need
51:12
for accrual, especially when you
51:12
are thinking of being acquired
51:16
when you are growing bigger, and
51:16
you have a vision to scale your
51:20
business. You cannot just last
51:20
with cash flow. Michelle, where
51:24
can people find Digitile and
51:24
connect with you?
51:28  Michelle Eichner
Yeah, so by
51:28
all means, please connect via
51:31
LinkedIn and Digitile is
51:31
digitile.io. Yes, reach out if
51:37
you have questions about
51:37
startups, questions about
51:39
anything we discussed today. I'm
51:39
more than happy to provide some
51:42
guidance and some feedback or
51:42
opinions on any any one of these
51:46
topics that we just discussed.
51:48  Christina Sjahli
Thank you so
51:48
much, Michelle, for being here.
51:50  Michelle Eichner
Thank you,
51:50
Christina.
51:52  Christina Sjahli
And that
51:52
brings us to the end of another
51:55
show. Thank you so much for
51:55
listening to another episode of
51:58
Her CEO Journey, the business
51:58
finance podcast for women
52:02
entrepreneurs. If you want to
52:02
create a proactive financial
52:07
plan and process for your
52:07
business, so you are ready to
52:10
weather the financial storm over
52:10
the next few months. Let's chat
52:15
and see what's possible for you
52:15
booking a time to speak with me
52:19
at
52:19
christinasjahli.com/let-s-chat.